Net capital stock reflects the market
value of the stock of fixed assets in the economy and as such provides an important
indication of overall wealth. It also forms an important input into the derivation of
other statistical indicators, such as depreciation and, in some cases, capital
services.

Definition

The stock of assets surviving from
past periods, and corrected for depreciation is the net (or wealth) capital stock. The
net stock is valued as if the capital good (used or new) were acquired on the date to
which a balance sheet relates. The net stock is designed to reflect the wealth of the
owner of the asset at a particular point in time.

The value of the net stock of produced
fixed assets is usually estimated by the perpetual inventory
method (PIM). The PIM cumulates past flows of GFCF in volume terms and
corrects them for the retirement of assets and for their loss in value due to ageing,
depreciation. Each annual investment is an addition to the stock, while each retirement or
deterioration enters as a deduction.

Some countries also compute a measure
of the gross capital stock which corresponds to the net stock before depreciation is taken
into account. Thus, the gross stock only adjusts for retirements but otherwise treats
every asset as if it were new.

It is also noteworthy that neither the
net nor the gross stock are the conceptually correct measure to capture capital inputs
into production - these are best reflected through measures of the flow of capital
services (see Measuring Capital in
"Further reading" for more information).

Comparability

Cross country comparability is
driven by three major factors: i) the coverage of fixed assets; ii) retirement and
depreciation profiles used; and iii) for those countries that use the PIM model, the
length of time series available for GFCF by product.

OECD countries use various types
of retirement and depreciation functions that may differ in shape and in regard to the
average and maximum service lives for different types of assets. For example, some
countries use linear depreciation profiles (corresponding to a constant amount of
depreciation every period) and others use geometric profiles (corresponding to a
constant rate of depreciation every period). However, the use of different parameters
and profiles for depreciation does not in itself imply a lack of comparability. There
may be very good reasons for these differences. For example, even if one could assume
that the buildings in one country were exactly the same as another, one might expect a
higher rate of depreciation in a country with extreme temperatures say.

An area where comparability is
directly affected concerns the coverage of assets in estimates of net capital stock,
and these are not always fully comparable across countries (see Indicator 12).